Podcast - Legal Reform and Business Realities in Venezuela

Stephanie Goldstein: This episode was recorded on June 24th, with our friends from Tinoco, Travieso, Planchart & Núñez, shortly before the devastating earthquakes that impacted communities across Venezuela. As we share this discussion, our thoughts are with all those affected and the many individuals working to support recovery efforts. Venezuela is a country defined by resilience and strength and we stand in solidarity with its people as they recover and rebuild. We hope this conversation provides valuable insights into the opportunities and future of Venezuela.

José Sirven: Thank you all for listening today. For today's episode, I am especially pleased to be joined by our colleagues on the ground in Venezuela from our partner firm Tinoco, Travieso, Planchart & Núñez. We're joined by Partners Margarita Escudero and María Verónica Espina, who bring a first-hand, day-to-day perspective on how these legal reforms and policy shifts are actually playing out in practice. They've been advising clients through the recent changes and are seeing in real time what it takes to operate in today's environment. Margarita, María Verónica, welcome and thank you for being here.

So Margarita, I'll direct my first question to you, if you don't mind. So from where you sit in Caracas, how would you describe the current environment and, you know, how does it feel different from, say, a year ago?

Margarita Escudero León: Yes, thank you, Joe. Well, from Caracas, the environment feels very, very different from a year ago. A year ago, most conversations about Venezuela were still focused on sanctions, on the challenges facing our economy, whether companies should stay away from the market. Today, the conversation has changed completely. We're seeing companies asking not whether Venezuela is investable, but asking under what conditions they can enter the market and how they should structure their investment. Also, there's clearly more activity on the ground. We're seeing more visits from international companies, more interest from investment funds, more meetings, discussions around potential projects, particularly, I would say, in oil, gas, electricity, mining, infrastructure. I would say that part of this change has been driven by the recent legal reforms, part by the reopening of certain sectors through the OFAC licenses, and part by a growing perception, I would say, that Venezuela is entering a new and different economic phase.

Besides all this, several developments that would have been difficult to imagine a year ago are now realities. Venezuela has formally started the process to restructure its sovereign and PDVSA debt, which is viewed as a very important step toward reconnecting the country with international capital markets. We're also seeing other things. For example, Venezuelan public financial institutions are gradually reconnecting with the international financial system. We're seeing new discussions about redefining the role of the state in the economy and also important efforts to attract private investment into sectors that have been historically dominated by public entities in Venezuela. All these developments, together with, of course, the U.S. interest in supporting economic recovery and the participation of the private sector, have helped definitely to a very different business environment here in Venezuela. At the same time, I would not describe the country as fully normalized. Investors are still, of course, looking closely at regulatory developments, the implementation of these developments and, of course, the country's long-term stability. So the way we describe it to clients is that Venezuela today presents many more opportunities than it did a year ago, but those opportunities still need to be approached with a clear understanding of the legal and operational environment we have right now.

José Sirven: Thank you. And Margarita, if I could just stick with you for the moment, are the policy shifts and reforms that we're seeing, are they actually translating on the ground yet? Or is there still a gap between what I would describe as policy and reality?

Margarita Escudero León: Yes, we're already seeing the effects of these reforms on the ground. There is greater investor interest, more commercial activity, a big increase in conversations around new projects, for example, in sectors such as hydrocarbons, mining and, more recently, electricity, where legal reforms are happening, U.S., European, Latin American companies are actively analyzing opportunities and already engaging with Venezuelan authorities. In fact, in the oil and gas sector alone, around 20 MOUs (memoranda of understanding) have reportedly been signed with international investors and operators. However, we should say there's still an important implementation phase ahead. Many of the reforms establish the general framework for economic activity, but investors are also waiting for the regulations, the contractual frameworks and the detailed rules that will determine how those reforms will fully work in practice. So the market is paying close attention to what the new laws say, but also to how they will be implemented. And that is probably the most important point for international investors right now. I would finish by saying that the policy direction is becoming very clear, much more investment-friendly than it was before. What investors are watching closely now is how the new framework develops in practice.

José Sirven: Thank you. María Verónica, so, we mentioned hydrocarbons, mining, etc. When you look across the hydrocarbons, the mining and the investment reforms that have already come into play, does this feel like a coherent strategy to attract foreign investment? Is it still evolving? What are your views on this strategy?

María Verónica Espina Molina: I would say it is both. There's a clear direction. When you look at the measures implemented over the past several months by the government, they point consistently toward a common objective: attracting private capital, technology and investment into sectors [that] are critical for Venezuela's economic recovery. I would say that historically, many of Venezuela's strategic sectors operated under frameworks that limited private participation and placed the state in a dominant operational role. What we're seeing now is a gradual change toward a model that creates more space for private investments while also preserving state ownership over natural resources and strategic assets. At the same time, there is a visible effort to rethink the role of the state in the economy. We are seeing ongoing discussions around increasing private participation through mechanisms such as public-private partnerships, concessions and other investment structures and models. The government has announced measures aimed at simplifying administrative procedures and reducing some of the barriers that have affected private investment over the years in Venezuela.

Having said that, I would not characterize the process as complete, but rather as an ongoing process. Some of these changes have already been adopted and implemented, others remain under development, and key regulatory and contractual frameworks are still being defined. But the message is clear: The government recognizes that Venezuela's recovery will require a substantial private investment. The developments we are seeing in sectors such as hydrocarbons, mining, electricity and foreign investment are all aligned with that objective. So while there is a clear strategic direction, the key challenge now is translating that direction into a fully developed and effectively implemented framework.

José Sirven: Let me follow up on that, please. On the hydrocarbons, mining and electricity reforms, what would you say are the changes that matter the most, right? For an investor in a practical setting, what are the changes that you would say matter most?

María Verónica Espina Molina: Yes, that's very important. I would say, first, there is a clear move toward greater private participation, as we already have mentioned. The reforms are creating meaningful opportunities for private investors to develop and operate projects in sectors that have traditionally been dominated by the state. Second, there's a strong effort to make projects more economically attractive and internationally competitive in both hydrocarbons and mining sectors. The new framework moves away from rigid fiscal structures and instead introduces a maximum ceiling for royalties and taxes. And this creates greater flexibility to tailor the government's take to the specific economics and risk profiles of each project. And this flexibility is very important because it allows projects with different risk profiles and capital requirements to be structured in a more commercially viable way.

And I would say another important element is the recognition of the economic equilibrium of contracts, and this is a key principle. Long-term projects, as you know, require significant capital commitments, and investors need confidence that the economic assumptions underlying their investments will be respected throughout the life of the project. The new framework recently issued expressly recognizes that principle, which is viewed very positively by the market, particularly in a country like Venezuela, where investors have been concerned about regulatory changes over time.

Finally, I would say opportunities are expanding beyond oil, gas and mining sectors. The proposed electricity reform is a great example, maybe one of the most significant, and it would open the entire sector to private participation across all other chains: generation, transmission, distribution and commercialization, areas that have long been reserved for a public operator. Given the country's infrastructure needs, many investors are now closely following development in the electricity sector. These changes have created a more attractive environment for long-term investment and bring, as we already said, capital, technology, expertise into sectors that are critical and key for Venezuela's economic recovery.

José Sirven: Thank you. Margarita, if I could turn to you now. Obviously, for investors, dispute resolution is always an important factor. Are you seeing a real shift toward accepting international arbitration, or is that still an area of concern?

Margarita Escudero León: So, commercial arbitration in general has never really been the issue in Venezuela. It is widely accepted and commonly used in private commercial transactions. The same is true to some extent for investor-state arbitration. Venezuela has entered into a significant number of bilateral investment treaties, many of which provide foreign investors with access to international arbitration. The real challenge in Venezuela has arisen when an investor entered into a contract with the state or a state-owned company and did not have this treaty protection available, because in those cases, the state has been generally reluctant to submit contractual disputes to international arbitration, particularly in this strategic sector such as oil, gas, mining.

So that is why these recent reforms are very important. Both the new hydrocarbons law and the new mining law now expressly open the possibility of use in international arbitration. And for investors, this is a very relevant signal because dispute resolution is a very important issue in any long-term project. Investors, as we know, need confidence that if a dispute arises, there is a credible and enforceable mechanism to resolve it. And I would say that this trend toward a greater acceptance of international arbitration has also been reinforced by recent changes to the OFAC licensing framework. As you know, the latest amendments to several Venezuela-related general licenses are consistent with this approach as they now allow dispute resolution not only in the United States, as was contemplated under the original licenses, but also in other major arbitration jurisdictions such as the United Kingdom, France, Singapore. So, yes, I do think there is a real shift, but it is still an area that needs to be handled by investors very carefully. The key for investors will be to make sure that dispute resolution clauses are properly drafted, consistent with Venezuelan law, consistent, of course, with the applicable OFAC license and strong enough to give investors and lenders the protection they need.

José Sirven: Margarita, staying with you, from an on-the-ground market perspective, are you seeing real inbound interest from international companies, people on the ground in Venezuela, and which sectors are actually moving forward versus remaining in a waiting mode?

Margarita Escudero León: Yes, we're seeing real interest, and one of the clearest indicators is that companies are no longer just studying Venezuela from a distance; they're coming to the country, meeting with potential partners, engaging with Venezuelan authorities and really, I would say, evaluating specific opportunities. The strongest interest, of course, today is clearly concentrated in the energy sector. In oil and gas, MOUs, as we mentioned, have been signed with new international operators and investors over these past months. We have also seen important agreements reported involving companies such as Shell, Repsol, Leni, Chevron, Schlumberger, which reflect a level of engagement that would have been difficult to imagine just a few months ago. Mining is also attracting significant attention thanks to Venezuela's resource potential, but also to the recent reforms to the mining law aimed at creating a competitive framework for investment. And we should also say that investors are increasingly also looking closely at the electricity sector where the proposed reform of the electricity law could create substantial opportunities for private participation in the sector.

In addition, I would say we're already seeing agreements with international companies such as GE Vernova and IMPSA to rehabilitate the country's generation capacity and complete major infrastructure projects such as the long-delayed Tocoma hydroelectric plant. These engagements clearly suggest that investment opportunities in the power sector may appear even before, I would say, we have the full new regulatory framework finished. And beyond those sectors we're also seeing interest in sectors such as financial services, logistics, FinTech, telecom, tourism, infrastructure. These, of course, do not generate the same headlines as oil and gas, but they're essential to Venezuela's economic recovery. That said, investors are moving at different speeds. Some are actively pursuing opportunities today, while others are waiting to see how the reform process evolves before committing significant capital. The market has moved beyond simple curiosity. Companies are now analyzing real potential investments and positioning themselves for opportunities they believe are starting to emerge.

José Sirven: Thank you. So, María Verónica, say I'm an investor, we've made that decision, we're ready to do something in Venezuela today. What does the first step actually look like in practice?

María Verónica Espina Molina: In practice, I would say the first step is not incorporating a company – as many may think. It is understanding the opportunity and designing the right entry strategy. One of the most common mistakes we see is investors assuming that there is a standard way to enter the Venezuelan market. And in reality, the appropriate structure will depend on many factors. Will depend on the sector the investment is coming through, the size of the investment, the regulatory framework and the investor's objectives. The process begins, I would say, with legal and regulatory assessments. Investors have to understand what licenses, approvals, permits may be required in the sector they want to enter, whether there are sector-specific restrictions – if it's a highly regulated sector, what compliance considerations apply – how the tax framework operates in the sector and what risks need to be addressed. And I would say that the next step is usually identifying the right local counterparties. Depending on the project, that may involve local partners, suppliers, service providers, financial institutions, state entities or existing operating companies. Due diligence is also key at this stage.

Only after all these issues have been analyzed should investors determine the most appropriate structure to enter into the market. In some cases, that may involve incorporating a new Venezuelan entity. In others, it may take the form of a joint venture or the acquisition of an existing business or a project-specific contractual arrangement. In practice, successful investors tend to spend more time planning their entry than executing it. The companies that move most effectively are those that invest the appropriate time to understand the regulatory environment and framework, particularly in complex jurisdictions as Venezuela, and that they structure the project correctly and identify the right local relationships before committing capital.

José Sirven: Thank you. And let me follow up on that. So from an operational perspective, a kind of a day-to-day operating reality, what might that look like, particularly around infrastructure, power, banking, logistics? Can companies realistically operate at scale, would you say?

María Verónica Espina Molina: Yes, companies can operate at scale in Venezuela, and many do. But they need to understand the realities of the market and adapt their operating models. Infrastructure challenges still exist, particularly in areas such as electricity, logistics and certain public services. And as a result, companies often build additional resilience into their operations. Many have incorporated backup power systems or self-generation capacities as part of their standard operational model. I would say in logistics, Venezuela's geographic position remains a significant advantage. The country has direct access to the Caribbean, proximity, as you know, to North American markets, well-established maritime connections and landings with neighboring countries. So the challenge is not geography, it is execution. Companies need to anticipate potential disruptions and build flexibility into their logistics and supply chains to operate properly.

Regarding banking and payments environment, that has also improved significantly in the recent months. Domestic banking services are functioning, foreign currency transactions are common, companies are generally able to process international payments through regular banking channels. And an important development this year has been the expansion of OFAC general licenses in this sector that now allows a broader range of financial services involving the Central Bank of Venezuela and central major state-owned banks. And this is facilitating greater participation by Venezuela financial institutions and has helped improve access to the global and the international financial system, which is key for cross-border transactions.

That said, this does not mean that all challenges have disappeared in Venezuela, of course. Companies still face enhanced compliance reviews, additional documentation requirements and, in many cases, over-compliance by international financial institutions. However, in our experience, many of today's challenges are more operational rather than legal. What we're seeing is that successful companies are not waiting for perfect conditions in order to enter. Instead, they are taking a pragmatic approach, understanding the market, identifying operational constraints and designing practical solutions around these challenges. Those that do so are able to operate and compete successfully in Venezuela.

José Sirven: Thank you. Margarita, what do you see as the biggest practical risks that companies need to plan for? You know, you've got regulatory uncertainty, there's infrastructure issues, there's workforce questions, security and a host of other things that potential investors are thinking about.

Margarita Escudero León: Well, in our experience, the biggest risks today are less about whether a company can enter the market and more about how it manages its investments once it is here. One important consideration, we believe, are the regulatory changes. Venezuela, as we were saying, is currently undergoing significant legal reforms across several sectors aimed primarily at attracting foreign investment, expanding private participation in the economy. That creates opportunities, but it also means that companies need to pay close attention to these developments and remain, I would say, flexible as this new framework takes shape.

A second consideration is operational planning. Infrastructure, logistics, power supply, currency management, all require careful attention. The challenges are manageable, but they need to be incorporated into the business model from the very beginning. Workforce planning is also important. Venezuela has, in general, a capable workforce, but companies need to understand the local labor framework and incorporate these considerations into their planning from day one. Security remains an issue that companies, of course, should always assess, but it is not the dominant concern, like it was several years ago here in Venezuela. Most businesses today are focused primarily on regulatory operational compliance issues rather than physical security.

And finally, I would highlight compliance. International companies operating in Venezuela must navigate not only local law, but also their own internal compliance requirements, the sanctions considerations and anti-corruption policies. So if I had to summarize, I would say that the key challenge today is not market access but, as we were saying before, preparation and planning. In our experience, the companies that do best are the ones that take the time to understand the market, build strong compliance processes and think through the operational challenges before committing capital.

José Sirven: That makes sense. María Verónica, what are the biggest mistakes you would say or maybe misconceptions that companies make when evaluating Venezuela today? What is the single most important thing that you think that companies need to get right, up front?

María Verónica Espina Molina: I think the biggest misconception is that companies tend to view Venezuela in extremes. Some assume that nothing has changed and that Venezuela remains as it was five or 10 years ago. Others assume that recent reforms mean the country has become a fully normalized investment environment, and in our view, both perspectives are incomplete. The reality is that Venezuela is changing, is navigating an ongoing process. There are meaningful reforms underway, new opportunities across several sectors, as we already discussed, and we're seeing a growing interest from foreign investors. At the same time, this remains a market that requires careful planning, strong local knowledge and a clear understanding of the legal and operational environments of these complex environments.

As we have said, the companies that are most successful are the ones that take time to understand the opportunity, assess the risk realistically and structure their projects appropriately. If I had to identify one thing that investors need to get right, it would be preparation. That means understanding the regulatory framework, the operational realities that we have discussed, the compliance considerations and the available investment structures before committing capital in Venezuela. In many ways, the country today is no longer a market that investors can simply ignore, but it is still a market that requires careful preparation. The companies that succeed, as Margarita was saying, are the ones that approach the opportunity with both optimism and discipline.

José Sirven: Thank you. Well, María Verónica and Margarita, unfortunately, I think we've run out of time here, but I want to thank you both. This has been incredibly valuable. Hearing the legal framework is one thing, but understanding how it actually plays out on the ground is what really brings it to life. I really appreciate you sharing your perspectives and the practical realities companies need to be thinking about as they evaluate the Venezuelan market. And I want to thank everyone for listening. We look forward to continuing this conversation in our next episode. Thank you.